The previous post presented Hayek’s knowledge problem in the context of the economic calculation debate under socialism. We discussed the distinction (sometimes overlooked) between information and knowledge . To sum up, information is objective data such as quantities and prices. As a qualitative concept, information can be complete or incomplete. Knowledge is subjective data interpretation. As a qualitative concept, […]

In my previous posts, Andreas Hoffmann and I discussed the problem of unintended consequences in monetary policy, particularly as applied to the U.S. Federal Reserve and the European Central Bank in the context of the 2008 crisis. This post tackles a related issue: the so called “knowledge problem.” This term was coined after Hayek’s engagement […]

Can you name an official at a major central bank who expresses worries that inflation is now, or soon will be, too high? Can you identify any financial publication–even the Wall Street Journal–that does not report that recent inflation data have been “disappointing?” To paraphrase former President Nixon, are we “all inflationists now?” Twenty years […]

In three previous posts, I have described the regression theorem, discussed its practical applications, and considered some misconceptions. In this post, I will consider the regression theorem in light of bitcoin. The discussion around bitcoin and the regression theorem usually focuses on whether bitcoin has some intrinsic worth (read: non-monetary use). If bitcoin is intrinsically […]

The Federal Reserve’s (Fed) and European Central Bank’s (ECB) policy responses to the recent financial disasters offer two tales of unintended consequences. Our previous post outlined the undesired effects of the Fed’s policies. In this post, we suggest that the ECB’s stabilization policies did not only fail to achieve its goals. Monetary policy has also […]

In two previous posts, I described the regression theorem and discussed its practical applications. In this post, I will discuss some misconceptions. Misconception 1. The regression theorem only applies to a barter economy. In a recent article, Laura Davidson and Walter Block argue that the regression theorem is only applicable in a barter economy. It […]

A liberal society is governed by the principles of private property and freedom of contract, under the aegis of a nondiscriminatory rule of law. In such a society, money enables economic actors to coordinate their activities. Money allows producers and consumers to find common ground, as profit-and-loss accounting enables producers to compare various lines of […]

I just read Ben Bernanke’s “The Federal Reserve and the Financial Crisis.” The book was actually published in 2013, and it contains his 2012 lectures at George Washington University. It contains four well written lectures that cover the history of the U.S. Federal Reserve and the 2008 financial crisis. Some of the complexities of the […]

Money neutrality is a key principle in monetary economics. As might seem obvious, the amount of goods that can be produced depends on the availability of factors of production (such as capital and labor) and on technological knowledge. For instance, the fact that more dollars are in circulation does not mean we can produce more […]

One feature of a liberal society is that its institutions, and especially its formal institutions with coercive backing, are bound by a nondiscriminatory rule of law, and work to protect the sanctity of property and contract for all persons. In such a society, the general laws of property, contract, torts, etc. govern the provision of […]

It seems likely that in the coming months monetary policy discussion will start focusing on the problem of shrinking the Fed’s balance sheet. A particular challenge of shrinking the Fed’s balance sheet is that of discontinuing the policy of paying interest on reserves (IOR). While at first sight it might seem that the IOR is […]

This piece originally appeared in World Economic Forum At the time of writing, the pace of expansion of the main central banks in the world exceeds $200 billion per month. In fact, in the first four months of 2017, central-bank asset purchases have surpassed the $1 trillion mark, according to Bank of America Merrill Lynch. […]

The IRS is expected to respond to a recent Congressional inquiry into its summoning records from Coinbase, a San Francisco-based digital currency intermediary, by June 7. The inquiry, sent by House Ways and Means Committee Chairman Kevin Brady (R-TX), Senate Finance Committee Chairman Orrin G. Hatch (R-UT), and House Ways and Means Oversight Subcommittee Chairman […]

On the one hand, money is the language of commerce; money prices are the very medium of economic experience. On the other hand, there seems to be a deeper reality behind the monetary economy. In this scenario, real resource constraints, as described by Walrasian general equilibrium or Misesian evenly rotating economy, ultimately place bounds on […]

David Golumbia has a new book titled The Politics of Bitcoin: Software as Right-Wing Extremism. It has received less than stellar reviews from Duke University’s Mike Munger and Bitcoin Magazine’s Giulio Prisco. So, perhaps I am just piling on. But pile on I must. Here’s the short version: Many see bitcoin as a clever piece […]

In my last post, I offered a brief summary of the regression theorem and provided some historical context to explain why it is an important idea. In this post, I will trace some practical applications of the regression theorem. Commodity monies can emerge naturally. The first practical application of the regression theorem concerns commodity monies—that […]

In the late 1800s, three economists working independently radically transformed the way we think about value. Classical economists had struggled to explain why water is typically much cheaper than diamonds, despite being more useful on the whole and, indeed, crucial to one’s survival. Then, William Stanley Jevons, Carl Menger, and Léon Walras offered an elegant […]

Even when a policy is successful in achieving its desired ends, we have to consider its unintended and unforeseen consequences, resulting from cumulative market adjustments to policy changes that make it hard to judge the overall outcome of a policy in our complex economy. The Federal Reserve and European Central Bank’s monetary policy responses to […]

My previous post was a crash course on the role of prices in a market economy. Importantly, prices are money prices. The vast majority of the time, producers accept the medium of exchange as payment for goods and services, and post prices denominated in the medium of exchange, which also makes the medium of exchange […]

Cheap money becomes very expensive in the long run. In my new book, “Escape from the Central Bank Trap” (Business Expert Press), I explain that central banks are using the same inflationary policies that led us to the financial crisis. However, this time, these policies put us at an even greater risk. The monster bubble […]

Our worldviews shape the ways in which we approach problems, challenges, and questions. Our “worldviews,” as I refer to them in this post, are so deeply embedded in our minds that we don’t usually realize our thoughts are driven by them. Monetary policy is not free from this “worldview” effect. There is a big debate […]

In a recent post at FT, Sam Flemming documents growing concerns among some former Fed officials that the Fed “risks political interference and losing its independence if it maintains a large balance sheet in the longer term.” I’ve discussed the increase in the size and composition of the Fed’s balance sheet before. More recently, George […]

This piece originally appeared in Learn Liberty The gold standard is both a strongly advocated and vehemently opposed monetary regime. Both positions, however, usually rely on misconceptions on what the gold standard actually is and why it failed. Below, I will discuss (1) what the gold standard is, (2) what is not, and (3) why […]

This piece originally appeared in Forbes Have you read about tens of billions of U.S. dollars — sometimes over $100 billion — “flowing out of China” every month? Makes one wonder where, how and when China got the plates, paper and special ink to start printing American currency. Of course, it is all electronic money, […]

The Euro zone CPI data continues to show the rising trend we commented here (read). In January inflation rose by 1.8% year-on-year, the highest reading since February 2013. However, while inflation expectations rise, markets remain stale. The stock market is not showing any boost from this reflation trend. Why? Inflation is up mainly due to energy’s positive […]

A price is an exchange ratio: you must give up a certain amount of one good in order to get another good. Barter economies have prices, which are expressed as ratios of the goods themselves. In money-using economies, prices are expressed in the economy’s medium of exchange, which frequently makes the medium of exchange the […]

In recent years, economists and central bankers have been advocating moving away from cash transactions towards an economy relying fully on financial transactions. At prima facie, this seems to be a good idea. Using checks and financial transfers can be more secure; the fact that every transaction is recorded makes illegal transactions (drug deals, etc.) […]

This is the fourth (and, perhaps, final) post on Ken Rogoff’s The Curse of Cash. As summarized in an earlier post, Rogoff argues that the benefits of banning cash (e.g., preventing crime, enabling effective monetary policy) exceed the costs (e.g., a reduction in financial privacy). He does not attempt to estimate the benefits and costs […]

This piece originally appeared in Hedgeye “From its creation in 1913, the most important Fed mandate has been to maintain the purchasing power of the dollar; however, since 1913 the dollar has lost over 95 percent of its value” -James Rickards One of the least talked about proposals of the future Trump administration is the one […]

A basic tenet of macroeconomics and monetary economics is the difference between nominal variables and real variables. Nominal variables are expressed in current market prices. Real variables are adjusted to reflect the changing purchasing power of money over time (inflation or deflation). For example, the nominal interest rate is the rate that currently prevails in […]

This piece originally appeared in Mises Institute Inflation is the most pernicious of taxes levied by our government. Officials systematically devalue the dollar, then levy capital gains taxes on assets when their dollar price rises. The “gains” are largely illusory. Rising asset prices over time reflect the fact that the dollar buys less of everything. But the […]

The American economy is still in the doldrums. It is growing and creating jobs at a snail’s pace compared to the years before the financial crisis. There are several reasons for this. But the actions of the Federal Reserve bear significant blame. For now, the public’s anger at the Fed’s questionable activities during and after […]

This is the third of several posts on Ken Rogoff’s The Curse of Cash. As summarized in an earlier post, Rogoff argues that banning physical cash has two major benefits: reducing crime and enabling effective monetary policy at the zero lower bound. In this post, I will address the first of these supposed benefits by […]

This piece originally appeared in The New York Sun It’s hard to think of an opportunity quite like that shaping up for President Trump in respect of the Federal Reserve. The announcement Friday by Daniel Tarullo of his intent to resign from the central bank’s board means that Mr. Trump will have three immediate openings […]

This is the second of several posts on Ken Rogoff’s The Curse of Cash. In this post, I consider Rogoff’s estimate for the extent to which cash is used by criminals and tax cheats. If you have not yet read the book, I offer a brief summary in a previous post and I will consider […]

This piece originally appeared in Learn Liberty By Nicolás Cachanosky When you pay interest, what are you paying for? Interest rates are one of the most confused subjects in economics. What are they, really? And what is their role in economic crises like the housing bubble and crash of the 2000s? The first thing to […]

As I mentioned in an earlier post, I have been reading Ken Rogoff’s new book, The Curse of Cash. Rogoff is a very smart guy who has been thinking about this proposal for roughly two decades. It deserves serious consideration and I intend to give it such. I have organized my comments as follows. In […]

A few years ago, Cyprus announced it would accept a €10 billion bailout package on condition of imposing a one-time levy on bank deposits. The initial agreement, which included a 6.75 percent levy on deposit balances less than 100,000 euros and a 9.9 percent levy on deposit balances in excess of 100,000 euros, was largely […]

In his book, The Curse of Cash, Harvard economist Ken Rogoff offers an excellent discussion of the modern seigniorage process: Instead of having the government print money and buy things directly, modern-day seigniorage is a three stage process. In stage one, the government spends beyond its means (its tax revenues) and issues interest-bearing debt to […]

Is a “strong dollar” good or bad? If the currency of another country is pegged to the US dollar, and the US dollar is “strong,” is that good or bad for the other country? A recent Wall Street Journal article was titled “Heat is on Currencies with Pegs to Dollar” and the subtitle was “The […]

For several decades the money we use in everyday life is “fiat currency.” That is, it is created by central banks and its value is not anchored to anything of intrinsic worth such as gold. The workings and decision making of central banks is therefore important, and does not need to be a subject of […]

This article appeared in the December 2016 issue of Globe Asia Economic policy is subject to fads and fashions. The most recent economic-policy fad is public infrastructure. Its advocates include progressives on the “left” – like President Obama, Hillary Clinton, and Bernie Sanders – and populists on the “right” – like President-elect Trump. They tell us to […]

This piece originally appeared in Alt-M By Ari Blask More than two hundred people came to Cato last Thursday, November 17th, for the 34th Annual Monetary Conference. Four panels and two keynote speakers covered “Central Banks and Financial Turmoil,” the theme of this year’s conference. In his introduction, CMFA’s James Dorn laid out some of the […]

In recent decades, the “big debate” among monetary economists and policy makers was “Rules versus Discretion.” That debate accepted that the various tools/instruments available to monetary policymakers are well known. Implicit is that the linkages between open market operations of the central bank’s trading desk and the objectives of monetary policies have been defined and […]

For some time now, a lot of attention has been put on the Federal Reserve’s decision on whether or not to increase the federal funds rate target or to leave it unchanged at its current level. The health of the U.S. economy (and a significant part of the world economy) seems to depend whether or not the […]

This article originally appeared in Forbes International political and economic news in recent weeks was filled with stories and analyses of the United Kingdom referendum to leave the European Union (EU). The immediate results of the vote included the resignations of the British Prime Minister and other government leaders, as well as a substantial decline […]

This piece originally appeared in the Daily Caller With just days until the conclusion of one of our history’s most polarizing presidential election cycles, it’s hard for a proponent of a free-society to be truly excited. But while it may be difficult to accurately predict what a Clinton or a Trump presidency might look like, […]

When discussing the market for money balances, many reputable macroeconomics and money and banking textbooks say that the price of money is the interest rate. This ‘liquidity preference’ theory is misguided. The kernel of truth therein is that, in holding higher money balances, an individual is forsaking earning a nominal rate of return on assets […]

This article appeared in the November 2016 issue of Globe Asia. At a monetary conference in Vienna back in 2014, the distinguished Frenchman, friend, and occasional collaborator Jacques de Larosière proclaimed that the current world monetary order should be termed an “anti-system.” He has a point – an important point. Among other things, such an anti-system […]

Follow the money… Why are we still using cash? Given the rapid advances we’ve enjoyed in digital payment technology thanks to debit and credit cards and apps like PayPal, Apple Pay and Venmo, many economists are puzzled that cash hasn’t already begun going the way of the dodo. But what’s even more puzzling – and […]

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The Sound Money Project was founded in January 2009 to conduct research and promote awareness about monetary stability and financial privacy. It is a project of the American Institute for Economic Research.